Festive cheer: PSU banks may offer cheaper loans

The economic turmoil may throw up an unusual bounty for home, auto and corporate loan borrowers as banks try to keep growth buzzing - following a nudge from the finance minister.

Despite a severe credit crunch and with little room available to reduce interest rates, several government-controlled banks are looking at ways to boost retail credit to aid the domestic economy. Banks are in the process of firming up plans to provide a window of a few weeks during which they may offer loans for houses and cars at cheaper and discounted rates to customers. They are also looking to offer concessions on loans during the coming festive season.

With the benchmark 10-year yield on government securities (g-secs) hitting a five-year high of 9.27% per annum, there was little scope for rate cuts, said bankers. Since banks usually fix their lending rates based on the g-secs, as it is considered risk-free, this signals hardening interest rates or high loans for retail customers.

“So most banks are just looking at providing a short window with cheaper loans to garner customers,” a senior banking analyst who did not wish to be identified said.

The goodies may not be for long. “We have initiated a special scheme wherein we are offering discounted interest rates on housing and cars for a period of three months, the scheme is already on and we are happy with the response,” M Narendra, chairman and managing director, Indian Overseas Bank, told HT.

Finance minister P Chidambaram has nudged government banks to reduce lending rates to boost credit, to revive a sagging economy. In a meeting with the chiefs of public sector banks in July, he asked banks to look at ways to reduce their base rates – the minimum lending rate below which banks are not allowed to provide loans.

To stem the rupee’s fall against the dollar, the Reserve Bank of India recently imposed a complex set of measures to suck out liquidity from the financial system. The move, however, has pushed up short-term rates.

“Our bank is set to waive off processing fees for certain loans besides offering a discount to customers who opt to go in for house, car and personal loans at one go,” said TM Bhasin, chairman and managing director, Indian Bank. “We are examining the process and we will have to see what and how we can go about it,” said Arun Kaul, chairman and managing director, UCO Bank.